4 IP's - next steps

I've been invested since 2008 and have accumulated 4 IP's all up. 3 are negatively geared with one being slightly positive after a granny flat addition. I have access to about $800k from both an equity loan and existing blue chip shares I am willing to sell if need be.

My goal is to still accumulate as I'm in my late 30's and sell down later to live on a passive income or potentially pay for private school fees for my kids.

I have the option of:
a) developing one of my IP's and building 3 townhouses which will manufacture approx 150k in value after all costs (I'd like to hold these once developed); or
b) purchase another negatively geared property and hold - after which I'll def hit the lending wall;
c) use the 800k to buy blue chip fully franked shares and hold - no further property developments/purchases for now;
d) try and find cash flow positive properties to keep my borrowing capacity up and stay in the game...I've always had issues trying to find these. Even the granny flat development isn't exactly adding heaps to my cash flow position but it's helped.

Thoughts pls.

 

Which one would make you the most money?

 

a) high risk move at the moment. Plenty of townhouses around. I guess it depends on area and demand.
b) I don't see the point of more negatively geared property. You already have high exposure here.
c) Good thing about this is that you have money in another area. Your exposure to risk is spread.
d) Keep your eyes out and look at the figures. Again, plenty of people in this space. Depends on area and demand again.

 

Exactly what I'm trying to work out...posting here to help think it through and leverage the wealth of experience. btw, I've appreciated your posts Terry, thanks.

a) I'm not concerned about oversupply of townhouses for this one, it's within 13klm of Melb CBD.
b) I'm tending to agree, but will sitting on another IP be more fruitful than building townhouses 10 years from now?
c) I like the diversification but can also leverage less against shares if the need arises. I do like the liquidity of shares however.
d) uggghhh...thoughts of going regional, travel, getting creative...can i really make an extra 10k for a cashflow property? Maybe I just haven't had my eyes open.

Yes, it will soak up the cash.
Not business, I actually like my career and recently moved in to a new full time role.

Looking at around $750k all up.

 

You'll be right. As life decisions go, this isn't too bad

 

First world problems!

Yes, across 3 townhouses i'll be up a few grand with current interest rates. If/when interest rates rise, given the borrowings (current purchase and build costs), I'll have to dip in to savings to survive as I'll be very heavily negatively geared...potentially forced to sell

 

On another note, does anyone know the most accurate serviceability calculators that are available to customers that I can run various scenarios through?

 

@Manic You have accumulated 4 IPs over the years. I'd be surprised if you don't have a mortgage broker to walk through your scenarios for you. Your mortgage broker should be able to guide you through all these, keeping your long-term goal and strategy in mind.

I, myself, have accumulated 6 IPs and I wouldn't have done it without a great mortgage broker/mentor behind me. Loan structure and investor mindset are what matter most in my situation. Your situation might be different though.

 

I'd go the shares. Seems like the easy route, no maintenance, no vacancies, no council drama-no stress- just hold on and wait.
my second choice would be to develop the townhouses.
I wouldn't go for cashflows/regionals when you can likely achieve same cf with the townhouses.

 

Question before I properly chip in: from a lifestyle engineering perspective, do you have your PPOR all sorted, or do you have aspirations to upgrade your home as well?

Just thinking about all of life's competing priorities.

Thanks,
John

 

In my view also a good time not to be completely over-leveraged, and having some diversification from property isn’t a bad thing.

Finding cash-flow positive properties (without higher risk dual/occ, rooming acom, GF etc) close to major cities is highly dependent on timing in the cycle - they’re around early in the cycle and pretty much non-existent at the top.

Maybe it’s a good time to park a few dollars in shares and keep the rest in cash ready for better buying opportunities a little further down the road - particularly if Syd/Melb have a harder landing than expected..

 

I’d also be thinking carefully about managing risk - having 3+ negatively geared properties without positive geared properties offsetting cash flow losses, leaves you particularly exposed in the event of interest rate rises, rental vacancies, loss of income, changes from IO to PI loan payments, etc. 10 years is quite a long time to be waiting for properties to turn positive (probably the norm over 2008-2018, but not usually). That said, you have built up substantial equity, which offsets these risks, but you don’t ever want to be in a situation where your forced to sell any properties to manage cash-flow.

 

Thats what I'm seeing as well...townhouse development in Melb cashflow is similar to many regionals but with the bonus of capital growth and renter population to support.

PPOR is sorted and no major upcoming purchases apart from potential private school fees 4 years down the track. Thanks.

....and here we are.

It's the interest rate raises I'm most concerned about as well as potential inability to refinance when P&I kicks in...if i went for townhouses interest rate raises will further be magnified with the further debt of townhouses.

 

Putting three townhouses up would take a little time and you would need to finance this as it goes up? This time without a rental income/lesser rental income from this property could be a good stress test of your financial situation to see how you would go when interest rates rise.
Best of luck with it, it's a good position to be in. Having options that is.